Chapter 1 Reaching for a New Deal: Ambitious Governance, Economic Meltdown, and Polarized Politics

Chapter 1 Reaching for a New Deal: Ambitious Governance, Economic Meltdown, and Polarized Politics Theda Skocpol and Lawrence R. Jacobs “The NEW New Deal—What Barack Obama can learn from F.D.R.—and what Democrats need to do” was the feature story in the Time magazine of November 24, 2008, which hit the newsstands soon after the historic 2008 elections. The striking cover portrayed a grinning Obama wearing a fe- dora and riding in an open car, a cigarette in a long silver holder jutting from his lips. The image nicely suggested that the newly elected president might be able to propel a shift in U.S. governance and politics comparable to that of Franklin Delano Roosevelt’s first New Deal in the 1930s. Put another way, it seemed that the Obama administration, working with Democrats in control of both chambers of Congress, might be able to fash- ion public programs and tax measures to mitigate and reverse trends to- ward greater social inequality that have marked American society in re- cent decades—and to do so in a way that could build majority support and electoral momentum for the future (Beinart 2008). Not just Time magazine writers, but many pundits reacting to the 2008 election as well, spec- ulated that Obama’s presidency could be pivotal in the same way as FDR and Ronald Reagan before him, shifting the role of government in U.S. life. By two years after Obama took the oath of office, the jaunty image was long gone—even though the record of accomplishments was impressive. President Obama and the Democrats of the 111th Congress fashioned 1 2 Reaching for a New Deal landmark legislation during 2009 and 2010—comprehensive health care reform, revamped higher educational loans, and regulation of Wall Street financial practices vital to the health of the U.S. and world economy. Mo- rale and degrees of effectiveness were restored or established in many parts of federal administration that had languished or abandoned key missions, and the Obama administration made assiduous use of cabinet powers to spur school reforms, improve health and safety enforcement, enforce immigration laws, and tackle environmental threats. What is more, economists of various persuasions and the nonpartisan Congressional Budget Office agree that the fledgling Obama administration and congressional majorities took the basic steps necessary in 2009 to cut short a financial crisis, prevent a sudden disappearance of the U.S. auto industry, and forestall overall economic collapse into a second Great Depression. After a few months, America’s beleaguered economy turned from nearly unprec- edented contraction to growth (Geithner 2010). All this happened as the White House also pulled the nation back from the protracted bloodletting in Iraq, redefined and intensified the previ- ously faltering war in Afghanistan, and reengaged global negotiations over environmental, security, and financial issues. Few new presidents have been greeted with so many crises at once, and few have tackled so much so fast, whatever missed opportunities, political controversies, and maladroit steps there have been along the way. The Obama administration made progress during 2009 and 2010 despite a solid wall of opposition from congressional Republicans, whose obstruction of remedial steps to prevent the collapse of the financial system and national economy may be without parallel in a juncture of true national emergency. Years from now, when current political passions calm and historians look back, the first two years of the Obama presidency and the 111th Congress are bound to stand out as one of the most active and consequential junctures in modern U.S. history, a moment when, amidst popular dismay, partisan polariza- tion, and clashing movements, the White House and Congress tackled ex- traordinary challenges, averted catastrophe, and put policies in place to foster a healthier, better educated, and more equal American society. But as of 2011, with a brash, Republican-led House of Representatives driving much of the agenda in Washington, D.C., in the wake of massive November 2010 electoral losses for Democrats, Obama’s presidency has been declared a failure by opponents and a disappointment by some initial supporters (for a sample of ongoing debates, see Alterman 2010; Hirsh 2010; Judis 2010a, 2010b; Klein 2010; Kuttner 2010; Krauthammer 2010; Krugman 2010a). According to official reports, the U.S. economy pulled out of recession during 2010, but growth remained sluggish and the cre- Reaching for a New Deal 3 ation of jobs, especially in the private sector, did not keep up with the needs of a growing population or counter the desperation of millions who lost employment or hours of work in the Great Recession (Krugman 2010b). The crisis of 2008 and 2009 in the United States was triggered by financial shenanigans and a real-estate bubble, so even as overall growth stumbles back to life, retirees and near-retirees have seen lifetime savings shrink, and millions of American families are saddled with mortgaged homes they cannot sell for enough to cover what they owe. In many parts of the country, communities are blighted by depressed real estate markets and dotted with abandoned shopping malls and storefronts. As tax reve- nues have fallen, state and local governments struggle to maintain ser- vices needed more than ever and have boosted unemployment by laying off state employees. Overall, state cutbacks have counteracted much of the boost from federal stimulus spending in 2009 and 2010. On the federal level, as stimulus spending wound down, Obama struck a postelection deal with congressional Republicans in December 2010 to temporarily sustain unemployment benefits and middle-class tax breaks in exchange for extending tax cuts for the affluent for two more years, even though experts rate such cuts for the affluent as one of the least effective ways to boost economic growth. The story is also one of stubbornly divergent economic fortunes (Reich 2010). As overall economic growth returned in 2010, things seemed to have recovered in the upper-middle-class enclaves where managers and professionals live and work, but the economic doldrums persisted in most other urban, suburban, and rural areas—places where, no matter how much prices are reduced, most consumers cannot afford to buy enough to jumpstart robust growth and new hiring. Going into the Great Recession, the United States had developed glaring gaps of income and wealth, di- vergences that reached the highest point since the late 1920s. Long gone is the postwar U.S. economy in which a rising tide lifted all boats. Since the late 1970s, the U.S. rich, super-rich, and super-super-rich have seen their wealth and incomes soar, but the upper middle class has experienced a modest rise in fortunes, and everyone else has treaded water—in what Jacob Hacker and Paul Pierson (2010, chap. 1) aptly call a winner-take-all economy. Americans of modest means tried to keep up by taking on debt with credit cards and second mortgages, which fed the financial meltdown in 2008 and has made it hard for families to resume consumer pur- chases since then. The struggling recovery has intensified the unequal fortunes of Americans, as the rich and the upper middle class regain footing first and other Americans slip further behind and struggle to afford the basics of life. The nonpartisan U.S. Census Bureau reported the highest 4 Reaching for a New Deal number of Americans and children living in poverty since it began collect- ing these data half a century ago, and community groups placed the need for food assistance at a quarter-century peak. By any standard, massive suffering and uncertainty continue for workers and communities facing a lack of jobs, home foreclosures, and lost wealth in pensions and home equity; and entire cohorts of young adults are finding it nearly impossible to launch stable careers and build families. Yet since the initial recovery steps taken in early 2009, the Obama administration has proved unable to persuade Congress to do much more to save or create new jobs, especially not through additional federal spending (Montgomery and Irwin 2010). Some would argue that it has not even tried very hard to get Congress to accept such steps. For Americans pri- marily worried about jobs, the major reforms Obama and congressional Democrats delivered during 2009 and 2010—reconfiguring the health in- surance system, regulating Wall Street—have not seemed directly relevant to their daily lives. The political tsunami in November 2010 resulted, in part, from deep divisions among Americans about the realities and prospects of the economy, with many voters questioning the effectiveness of federal government efforts to cope with economic stagnation, immigration dilemmas, and environmental threats (Silverleib 2010). Jobs were the top concern, but many people also worried about taxes and looming federal debts, because even before Obama arrived at the White House, unpaid wars and upward- tilted tax cuts had run up considerable federal red ink, and the federal government had spent still more to avert another Great Depression. Amer- icans were upset to see significant new spending and federal indebtedness without tangible robust recovery for ordinary workers and families. Vot- ers experiencing the bad could not readily grasp that things could have been far worse. Because Democrats were the incumbent party, they bore the brunt of public doubts: in the U.S. House of Representatives they lost the majority and gave up a post–World War II record sixty-three seats; in the Senate they were reduced to fifty-three seats, well short of the sixty- vote majority necessary to overcome a filibuster; and in governorships and state legislatures they also saw major losses, especially in the Mid- west.

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